“We took a substantive step today … and we’re prepared to do more,” Bernanke said during a press conference that concluded two days of meetings by the Federal Open Market Committee, which sets most Fed policy.

Despite the move being widely expected investors were disappointed by news. The Dow Jones Industrial index closed down 12.94, or 0.10%, at 12,824.39. The S&P 500 fell 2.29, or 0.17%, to 1,355.69, while the tech-heavy Nasdaq stock market gained slightly.

The program that will be extended, “Operation Twist,” was initiated by the Fed last year to keep long-term borrowing rates low on loans such as mortgages through a shift in the Fed’s portfolio toward securities with maturities of six years or longer.

The Fed will continue for the rest of 2012 to sell short-term securities and buy long-term securities, shifting the balance of the central bank’s portfolio.

“This continuation of the maturity extension program should put downward pressure on longer-term interest rates and help to make broader financial conditions more accommodative,” the Fed said in a statement accompanying its decision.

Bernanke reiterated during the press conference that interest rates would remain at their historically low range of 0% to 0.25% until at least late 2014.

Pressure Rising on Fed

Pressure has been rising on the Fed to get off the sidelines and provide new stimulus as one piece of data after another has revealed weakness in the U.S. economy.

The debt crisis in Europe has flared up significantly in recent months, piling on top of three consecutive months of weak labor reports in the U.S. The housing market, a key barometer of economic health in the U.S., has remained stagnant for years despite record low mortgage rates and a surplus of relatively cheap homes on the market.

Reflecting all that, the Fed statement was more downcast than earlier language. Wednesday’s statement said the FOMC expects the unemployment rate to decline “only slowly,” a downgrade from its April statement, which said the rate would decline “gradually.” Also, economic growth will pick up “very gradually” versus “gradually” in April.

A majority of FOMC board members apparently favor more action. A vocal minority has argued that too much stimulus will lead to troublesome inflation down the road.

Early in 2012 the global economy seemed to be picking up steam. U.S. labor markets looked to recovering with three consecutive months of 200,000 jobs gained. Meanwhile, European fiscal leaders had reached a eurozone wide agreement that seemed to quell fears of a breakup of the 17-member single currency system.

But it was short-lived and Bernanke conceded that the Fed may have been too optimistic about recovery. Since spring U.S. labor markets have fallen off a cliff and Europe is once again bordering on fiscal chaos. As all eyes and resources have been focused on Greece conditions have deteriorated in Spain and Italy.

Fed ready to act again if necessary

In his press conference Bernanke again made it clear he’s ready to act if circumstances warrant it. But each new program initiated by the Fed to spur economic growth has potential consequences – some good, some bad -- elsewhere in the economy, the chairman explained.

“I don’t think they should be launched lightly,” he said in response to questions asking why the Fed isn’t doing more.

The FOMC statement, echoing Bernanke’s long-held position, said: “The Committee is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.”

In response to a question related to the success of earlier programs, Bernanke said it’s “inaccurate” to say Fed policies haven’t helped the public.

At the same time some analysts believe it’s time for the Fed to stand down for a while until the economy provides some indication of a clearer direction.

Dan Greenhaus, chief global strategist at BTIG LLC, wrote ahead of the Fed’s announcement, “There is no doubt the economy stinks but the Fed is quite clearly unsure, correctly or not, that it has the tools to affect outcomes in a sustainable manner… Given the various uncertainties surrounding monetary policy, we would prefer the Fed do nothing at the current meeting, choosing instead to wait for additional incoming information.”